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Advanced Technical Analysis

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Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

The short term picture remains very mixed technically speaking: the short term pattern in each of the indices is different; up volume has been strong but important divergences (breadth, volatility, momentum) continue to accumulate. And when considered in terms of the daily sentiment multi-year peak here, we remain of the view that we are due for a correction of the entire impulse sequence up from the 10/25 lows (at least) in each of the three indices.

You will recall that our original target based on the analysis for the SPX laid out in the 11/5/04 note was 1195-1205 between November 12th and November 18th. Prices did turn down within that window but never got to the 1195-1205 price window. Yesterday's peak in the SPX at 1194.81 is close enough to consider the Fibonacci price target to have been satisfied. It is certainly possible for prices to extend a few points higher over the next session or two but at this juncture, we maintain our view that the long side is especially risky here given the sentiment backdrop, the underlying technical weakness evident and the completed Elliott wave pattern into our projected Fibonacci targets (not advice). The short side however remains equally difficult, as no confirmation of any sort of correction has materialized via a 5 wave impulsive sequence down on the hourly chart.

This is the reason we are maintaining a decidedly sideline stance here. All the pieces are in place for a correction of some degree the question before us is what degree that may be. Only the form and degree of the price correction over the next several weeks will allow us to determine if 1250-1260 is the next price magnet for the SPX or if the 1195-1205 window was sufficient for a meaningful multi-month (or more) decline. For now patience remains key and in this environment is the most difficult trait to have. Any move below SPX 1180, NDX 1580, and INDU 10500 in the next few sessions will be initial evidence that some sort of degree of correction appears underway. We will then be in a better position to evaluate a good risk/reward scenario. Until then, being an observer may be the smartest action to take.

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